A new set of rules by Hong Kong's stock exchange to allow IPOs by specialist technology companies can attract smaller companies without significant revenue to raise capital in the Asian financial hub.
The listing framework of Hong Kong Exchanges and Clearing Ltd. (HKEX) for specialist technology companies will allow such companies to list at a market capitalization of HK$6 billion, according to new rules announced March 24. The threshold was even lower than the HK$8 billion proposed for the listing of specialist technology companies in the early stages of commercialization in the consultation paper for the new rules in October 2022.
The relaxed eligibility criteria makes Hong Kong "accessible to a greater number of potential listing applicants, allowing for a more diversified range of specialist technology companies to list in Hong Kong," Louis Lau, partner, capital markets at KPMG China, told S&P Global Market Intelligence via email. "This helps create and sustain investor interest in such companies, which is an important step in growing the specialist technology investment ecosystem in Hong Kong."
The new listing rules will allow companies inherently attracted to the Hong Kong capital market, but unable to fulfill the preexisting eligibility requirements to list and gain access to the city's deep pool of capital, Lau added.
IPO activity in Hong Kong, often among the top three global listing venues, has been "uncharacteristically quiet" in the first quarter, consulting company EY said in a March 30 report. Technology companies have been a mainstay of IPO activity in recent years and continue to lead listings by volume globally, the report said. Hong Kong's IPO market has faced competition from other financial hubs such as the Shanghai Stock Exchange Science and Technology Innovation Board, or STAR market, and Singapore, which has stepped up efforts to project itself as a hub for innovation in recent years.
Tailor made
HKEX defines specialist technology companies as those primarily engaged in research, development and commercialization of products or services that apply science and technology. The new listing rules, which come into effect March 31, also define two categories of such specialist technology companies. A commercial company should have revenue of at least HK$250 million, while a precommercial company is defined as one which has not yet met the commercialization revenue threshold at the time of listing.
"HKEX aims to tailor the listing and compliance requirements to the nature of specialist technology companies, but at the same time, seeks to balance the protection available to shareholders," said Harold Tin, partner at law firm Norton Rose Fulbright Hong Kong.
Hong Kong has so far lagged the US and China in the listing of technology companies due to the historical financial track records of the issuers required for listings under the traditional IPO regime, Tin said. A more flexible approach to define the scope of specialist technologies is welcome, Tin said, adding that this would allow the exchange to react quickly to the latest technology trends and emerging industries that keep evolving over time.
"This is an exciting new development for Hong Kong's equity market," Nicolas Aguzin, CEO of HKEX, said in the press release, adding that this new route to market will "support some of the most innovative and progressive companies in the future."
